CHINESE STARTUPS NEAR MERGER TO FORM $15 BILLION ONLINE-TO-OFFLINE COMPANY

By Rick Carew and Juro Osawa

HKT HONG KONG–Two of China’s biggest tech startups are nearing a merger worth more than $15 billion, creating the country’s biggest online-to-offline provider of services ranging from movie tickets to restaurant bookings, according to people familiar with the situation.

Rivals Meituan.com, China’s version of Groupon.com, and restaurant-review app Dianping Holdings Ltd. are nearing a deal to merge that would create a company with a combined value of more than $15 billion, according to the people. The deal by the two start-ups, already worth billions of dollars through several rounds of funding, could be announced in the coming days, according to one of the people.

The deal brings together two rivals backed separately by Chinese Internet giants Alibaba Group Holding Ltd. (BABA) and Tencent Holdings Ltd. (0700.HK) and follows a template set out by the $6 billion combination of the two rival taxi-hailing services separately backed by the Chinese Internet giants in February. After the two rival taxi apps combined to form Didi Kuaidi Joint Co., the new company was able to raise $3 billion from investors at a $16 billion valuation.

Investors in Meituan and Dianping are hoping for a similar result as the two companies specializing in deals for restaurants, movie tickets, and other offline services turn from competing against each other to taking on Chinese online search giant Baidu Inc.’s (BIDU) group-buying platform Nuomi. Baidu said in June it planned to invest $3.2 billion in Nuomi over the next three years as the online search engine pivots its business model toward connecting online users with offline services.

The combined Meituan.com and Dianping will present a more formidable competitor to Baidu. The competing platforms have spent aggressively to attract merchants and consumers, burning cash in the process. Meituan and Baidu executives have said that commission rates, also known as “take rates,” range between 2% and 5%. The executives have said they need to raise those rates to between 5% and 7% in the longer-term to be able to make money.

Putting the two companies together would be the biggest deal in a series of Chinese Internet consolidations this year. Many Chinese tech entrepreneurs have expanded their startups by aggressively providing subsidies to users and merchants to gain scale, wiping out competitors that don’t have access to capital. That model has whittled down the field of competitors in many segments of the Chinese Internet to a handful of well-funded competitors.

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